1. You work for a district government in a developing country as an economist. The district has good schools, and education is free. However, the average years of schooling children achieve is low. Through this question, let's see if we can use opportunity cost to understand why this could be the case.

a) This district is an agricultural district and supposed for simplicity, that everyone works on a family farm. If kids don't go to school, they work on the family farm. For a family that has a kid that could attend school, what is the cost of one year of schooling for that kid? Remember, education is free so you would have to think of opportunity cost. You could consider things like the cost of books, uniforms etc, but lets assume that away for now.

Hint: What is the resource the kid is using to attend school and what is the value of that resource in the next best alternative use, working on the farm? Is this a marginal cost or a total cost?

Hint: Is this a cost for an extra something or just comparing doing X or not? Does it depend on the age of the kid?

Hint: How does the value of the kid's time working on the fame depend on their age?

b) Suppose the extra cost to the family for the Xth year of schooling is $10X. What is the marginal cost function for schooling? Explain and draw it on a graph.

c) Education is beneficial. With an extra year of education, the kid is more productive and gets paid a higher wage. The total income the kid earns in the future for X years of education is $80X. What is the marginal benefit of an extra year of schooling? Explain and draw it on a graph. Note: Kids can't work in BPO centers. They only earn this wage as adults, however, the income the family loses due to school attendance is incurred now. This is tricky because parents pay the cost now but kids earn income in the future. Suppose that parents are altruistic and they care about the kid's future income in the same way the kid would. This makes the argument simpler as the kids wage in the future is the parents benefits now when making the choice.

d) Given the information in parts (b) and (c), how many years of schooling will a kid in your district get? Explain and draw it on a graph.

e) A BPO (business process outsourcing) center opens in your district. Jobs there pay well. The total income the kid earns in the future for X years of education is now $100X. Does this change the number of years of schooling a kid in your district gets? Explain and draw it on a graph.

f) Can you use your answers above to explain why students in your district have a low average years of schooling?